Q & A
A Question From Our First Time Homebuyer Workshop
I want to order my credit report but I’ve heard that credit inquiries lower your credit score. Is that correct?
Whether a credit inquiry affects your credit score depends on who’s asking. Requesting information on your own credit won’t affect your credit score and in fact, it’s strongly recommended.
Here’s how it works: When a business or individual asks about your credit, it’s called an “inquiry.” Credit inquiries are either “hard” inquiries” or “soft inquiries” and there’s an important difference:
- Hard inquiries: A hard inquiry can lower your credit score. These happen when you apply for credit from a lender or other business and you authorize them to check your credit as part of the application process. Examples are applying for a mortgage, an auto loan, or a credit card.
- Soft inquiries. Soft inquiries do not affect your credit score. Examples are when you request your own credit report, when a landlord checks your credit for an apartment rental, and when employers check your credit as part of a hiring process. Credit card companies may also perform soft credit inquiries by checking your credit without your knowledge or authorization. If you didn’t request the credit or authorize the credit check, then the company is performing a soft inquiry.
- Don’t apply for new credit cards, store cards, auto loans, etc. when you’re shopping for a mortgage. These are all “hard inquiries”. The impact on your credit score varies but it can add up. Even if you only lose a few points, lenders will see the inquiries on your credit report and may be concerned about your intention to increase your debt while applying for a mortgage. (If you do create significant additional debt while applying for a mortgage, the added payments may have a negative impact on your eligibility for a loan.)
The only credit you should apply for when shopping for a mortgage is the mortgage itself!
- Do check your own credit report and correct any errors. Instructions are included in the reports. Your credit is a major factor when you apply for a mortgage, so make sure all the information about your finances is correct.
The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months to ensure that the information on all of your credit reports is correct and up to date.
We recommend www.annualcreditreport.com to order your free credit reports and if you wish, your credit scores (scores require a fee).
Fern Selesnick, Homeownership Education Coordinator